This stock is benefiting from India's growing pediatric healthcare market. Why is this stock is the analyst pick of the week?

The paediatric and perinatal care hospital chain reported good performance in the December 2024 quarter with 18% and 11% year-on-year growth in revenue and PAT respectively. The numbers surpassed Reuters-Refinitiv estimates by 3% and 6% respectively. While revenue growth was supported by increased patient volumes and average revenue per patient (ARPP), a significant jump in other income aided the bottom line.

Operational efficiencies aided EBITDA,which grew by 14% year-on-year while the overall occupancy also improved. However, average revenue per occupied bed (ARPOB) declined amid an increase in average length of stay (ALOS) and new bed additions. The company operates 19 hospitals (and five outpatient clinics) across six cities. It has a bed capacity of 1,935 with over 835 doctors.

It is benefitting from the growing paediatric healthcare market. Also, India’s low spending on childcare products and services, high birth rate compared to China and the United States, increasing maternity age, increased focus on preventive healthcare, and expansion of medical tourism are some of the tailwinds. Rainbow is distinctive from its peers as it offers the highest number of beds in paediatric intensive care units and neonatal intensive care units. It operates on a hub-and-spoke model (the central hospital delivers comprehensive outpatient and inpatient care whereas the satellite facilities provide emergency care) that helps in lowering costs.


The operating model focuses on a multi-disciplinary approach with a unique doctor engagement. The doctors work exclusively on a full-time, retainer basis and follow a collaborative team approach for patient care. Moreover, the company enjoys lower capex per bed as most of the paediatric cases are non-surgical and, therefore, the spending on expensive medical equipment is low.

The company allocates significant capex towards the interiors of hospitals to create a children-friendly environment. Analysts list cost optimisation through centralised procurement of medical equipment, focus on tertiary and quaternary paediatrics that ensure higher ARPOB and diversification of geographical footprint as the key strongholds of the company.

A recent Prabhudas Lilladher report says that the company enjoys higher margins, strong FCF generation and healthy return ratios because of the asset-light hub-and-spoke model. Also, its strategic expansion across its core markets in South India augurs well for its sustainable growth. The report expects return ratios to improve with the ramp-up of new capacities. The stock price has modestly outperformed the market benchmark in the last one year with 3.8% returns compared to BSE Sensex with 2% returns.

Selection methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ during the past three months. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.